On August 6, ATI Inc. (NYSE:ATI) reported results for the fiscal quarter ended June 28 that came in above the high end of its own guidance, prompting the company to raise its full-year 2026 outlook for the second straight quarter. Sales climbed 11% year over year to $1.26 billion, net income attributable to ATI jumped 50% to $151 million, and adjusted earnings per share rose 66% to $1.23. Behind those headline figures sits a backlog that has climbed to a record $4.4 billion, 18% higher than a year earlier.
Demand Outrunning Its Own Supply
The growth wasn’t confined to one corner of the business. High Performance Materials & Components, which supplies forged and machined parts for jet engines, grew sales 5% from a year ago to $637.1 million, with aerospace and defense work making up 93% of that segment’s revenue. Advanced Alloys & Solutions grew faster still, with sales up 17% to $624.0 million and segment EBITDA nearly doubling year over year to $147.6 million, a 23.7% margin. Defense sales inside that segment surged 90% from a year earlier, and aerospace and defense now accounts for 68% of ATI’s total revenue, up from 67% a year ago.
That mix shift toward higher margin work is showing up on the bottom line. Adjusted EBITDA margin, which climbed 440 basis points from a year ago, now sits at 22.6% of sales. CEO Kimberly Fields said demand for the company’s aerospace and defense materials is currently running ahead of what ATI can supply. Management is confident enough in that trajectory to keep buying back stock, repurchasing $50 million of shares in the quarter at an average price of $159.53, with $495 million still authorized. The guidance raise wasn’t timid either: full-year adjusted EBITDA guidance moved up to $1.135 billion to $1.185 billion, from $1.01 billion to $1.06 billion previously.
Cracks Beneath The Surface
Not every line moved in the same direction. HPMC’s segment EBITDA margin actually slipped to 24.1% from 24.9% in the first quarter, as higher manufacturing and period costs, including expenses tied to qualifying a new facility in Mexico and a titanium electron beam furnace, ate into the segment’s profitability. Growing the business is also consuming cash rather than freeing it up. Inventories climbed to $1.67 billion from $1.40 billion at the end of 2025, and managed working capital rose to 34.3% of annualized sales from 32.5% at year end, a $199.2 million increase in the first half of the year alone.
ATI has also leaned harder on debt to fund that growth, issuing $450 million in new senior notes and pushing short term debt to $383.6 million from just $31.1 million at the end of 2025. Outside aerospace and defense, demand is uneven. Medical sales fell to $23.0 million from $38.9 million a year earlier, and electronics sales slipped to $38.2 million from $43.7 million, leaving everything outside aerospace and defense at just 32% of total sales. And with the effective tax rate swinging from 11.8% in the first quarter to 20.0% in the second, quarter-to-quarter comparisons carry more noise than they first appear to.
What The Numbers Are Betting
Hedge fund ownership of ATI rose from 69 funds to 72 in the most recent quarter, suggesting institutional interest is building rather than fading. Short interest sits at just 3.85% of the float, pointing to relatively little organized skepticism in the stock right now. The forward price-to-earnings ratio, however, stands at 51.81 as of September 1, a multiple that already prices in a great deal of the growth management just delivered. That combination suggests that the market has largely caught up to the good news.
The Question Still Unanswered
ATI’s second quarter makes a clear case that its bet on aerospace and defense materials is paying off, with a record backlog and expanding margins to show for it. But the same results reveal a company spending heavily, through debt and rising working capital, to keep pace with that demand. For the growth story to keep justifying a multiple above 50 times forward earnings, HPMC’s margins will need to stabilize, and the shrinking markets outside aerospace and defense will need to stop shrinking.
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